How my exit plan turned into a home run deal blog by RJ PalanoRecently I wrote about a property we acquired at 761 Sacketts Court in Lawrenceville, Georgia, and in that article, I discussed the various exit plans for the property.

Since it was acquired for $50,000 under current market value, it would have been really easy to flip to an investor “as-is” for a minimum of a $25,000 profit.

I also could have sold it retail to an end user for approximately $50,000 profit. These are good problems to have, and it gets even more interesting. The specific terms of this transaction are as follows:
• Sales price was $165,000
• Subject to an existing debt of $155,000
• $10,000 due to the seller at closing

How my exit plan turned into a home run deal by buying a house "subject to the mortgage"l blog by RJ Palano in his series Art of the Deal for Personal Real Estate Investor MagazineThe property had very attractive financing at 3.1% with a monthly payment on a 15-year term with only 14 years remaining of just over $1,300 per month.

The property will rent for $1,600 per month. Due to the 15-year amortizing loan at 3.1%, the property had a high loan debt constant.

The reason for this is because approximately $900 per month is the principal pay-down on the note. The problem with such a high principal payment is that the interest deduction is very low and most of the rental income will not be offset by the interest and the depreciation deduction. I like the idea of the house being free and clear in 14 years, so rapid principal pay-down excites me.

So here’s what I did:

I acquired the property in my Roth Solo 401(k), which is a retirement account. Since it is a Roth retirement account, the rental income and future sale proceeds will never be taxed.

Since it is a 401(k) and not an IRA, there is no income tax on the amount of the purchase price that was financed. Initially, I was going to hold the property in my personal account because of the depreciation and rapid pay-down of the mortgage. However, keeping a quality house inside a retirement account for the production of income without being taxed on the principal portion of the mortgage was clearly the best choice.

Since the property is sole security for the debt, as it was purchased subject to the existing debt and not assumed by personal guarantees, it becomes a non-recourse loan and perfect for a retirement account.

On the surface, this might seem like a great deal for me and not so good for the owner.

Click below and see what the owner said a few days before closing:

Call me if you have any questions on how to structure transactions such as these.

To your investment success,

RJ Palano


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  • R J Palano

    RJ Palano is the acquisition director of, a Tampa, Florida-based company that primarily provides turnkey houses for investors in the metropolitan Atlanta and Tampa Bay areas. His property management experience spans more than 35 years, and he has been involved in more than 3,000 real estate transactions in 12 states and more than 50 cities. Contact him at 813-495-3006 or

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